Harrods

...sharing service charges fairly

Known all across the globe as one of the most high-end department stores, Harrods is currently involved in a dispute with its 483 restaurant workers over how service charges paid by customers are shared amongst staff.

As representatives of the staff, the United Voices of the World union (UVW) has claimed that the owner of the store pockets around 75% of the service charges, with employees getting the remaining 25%.

Joy Drummond, Partner in Employment Law, investigates the world of tipping and why employers need to be more transparent about their policies.

Waiters and kitchen staff at Harrods are due to take part in a demonstration on Saturday 7th January 2017 outside the store in London’s Knightsbridge, asking the company for greater transparency relating to service charges. In light of the current situation, Harrods has now promised to make improvements to its tipping system.

Sharing tips through a tronc system

The luxury store currently operates a tronc system, which involves sharing out service charges amongst staff but only on the basis that staff accept a pay cut. Customers visiting Harrods’ cafes and restaurants have to pay a 12.5% service charge that’s added to their bill. Some of this charge is then shared out to staff through a tronc system – but, staff don’t know what percentage of the service charge Harrods keeps.

The general secretary for the UVW, Petros Elia, said:

“Customers expect the service charge to go to staff and that’s where it should go. If Harrods feels the need to retain a percentage they should explain why.”

A spokesperson for Harrods has confirmed that the store is:

“…taking steps to improve the current system through which it distributes it service charge, to ensure it best serves our employees and is completing a detailed review into the existing scheme.”

Exactly where service charges generated by restaurants go has recently been questioned. Michel Roux Jr admitted in December 2016 that Le Gavroche, his Michelin-starred restaurant, classified service charges as revenue instead of tips that were shared amongst his staff. After this revelation, Michel said that this charge would no longer be implemented from the end of January 2017.

How should tips be shared amongst staff?

Under the Government Code of Practice Code of Best Practice on Service Charges, Tips, Gratuities and Cover Charges, businesses should provide workers with a written statement setting out the tipping policy including:

How tips are distributed

Whether this is done through a tronc, and the name of the tronc master

Whether cash and card tips are treated differently

How much might be deducted for administration and what this covers

What happens during holidays, sick leave, parental leave, and other forms of leave

But, the code is only voluntary at this point in time.

Joy explains:

“Tips that are paid directly to an employee by a customer don’t have to be shown on payslips but service charges that are paid to the employer and then paid by the employer to the employee on pay day do.”

“The problem is that it does not tell the employee what percentage of the total service charge is being paid to staff.”

Joy continues:

“Tips often make up a very important part of pay and are a significant part of the amount paid by the customer, which customers assume is going to the staff.”

“It is only fair to staff and customers that businesses make it absolutely public, clear, and verifiable exactly how much of the total amount the customer is paying for the service goes to the staff, and how much is being kept by the business as a disguised cost to customers. It appears that the voluntary code is not being followed even by apparently large, profitable, and supposedly reputable companies.”

“Employers need to remember that service charges, tips, gratuities, and cover charges paid to a worker do not count towards the national minimum wage, whether paid directly to the worker by the customer, from a tronc, or through payroll. This means that employers cannot make up the national minimum wage in whole or in part through tips – however these are distributed.”

“The Government’s consultation on its proposals for further action on tips, gratuities, cover and service charges closed on 27th June 2016. It is hoped that effective measures to control these abuses are introduced soon.”

“If you are concerned about your pay or find yourself in a similar situation,you should consult your union. If you are not a member of a union, you should consider joining one as unions provide the best protection against unfair pay. If you find that you need legal support and advice, get in touch with me or another member of our Employment Law team.”

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